Written by: Brian Christensen
Beginning in July, many taxpayers will start receiving monthly installments from the IRS. When the American Rescue Plan Act (ARPA) of 2021 was signed into law in March of this year, it expanded the traditional Child Tax Credit with the following changes:
- The credit now includes children who turn age 17 in 2021.
- Taxpayers may receive part of their credit in monthly installments in 2021.
- Increase in credit amounts.
The new Child Tax Credit amounts are as follows:
- $3,600 per qualifying child under age 6 at the end of 2021.
- $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021.
The credit for other dependents over age 17 remains at $500.
The IRS will use the 2020 tax returns to calculate the amount of the monthly advance based on income and dependents. The amount that will be paid-out is 50% of the eligible credit. For example, if a taxpayer has one dependent under the age of 6, the IRS is expected to issue an advance of $1,800 over the months of July through December ($3,600 credit * 50%). This results in the taxpayer receiving $300 per month ($1,800 advance / 6 months). For qualifying children between ages 6 and 17, the monthly advance comes to $250 per month ($3,000 credit * 50% / 6 months).
When the taxpayer files their 2021 tax return, they will be required to reconcile how much was received in monthly installments in order to determine how much of the credit is remaining to claim on their tax return. Unlike the economic impact payments received in 2020 and 2021, the monthly installments are advances of tax credits.
The Child Tax Credit is subject to the following phase-out limitations:
- For married taxpayers who file jointly or qualifying widow(er), the phase-out begins at $150,000 of AGI (adjusted gross income) and becomes completely phased-out at $440,000
- For heads of household the phase-out begins at $112,500 of AGI and is completely phased-out at $240,000
- For all other taxpayers, the phase-out begins at $75,000 AGI and is completely phased-out at $240,000
The IRS is currently developing a portal system. This is expected to be available by July 1st. The portal system will be useful for taxpayers to update:
- Changes to income,
- Number of qualifying children,
- Filing status, or
- Opt-out of the monthly advances.
For taxpayers that are eligible for the monthly advance, there is nothing they need to do to sign-up for the advances. The expectation is that the advances are to be issued on the 15th of each month beginning in July, unless the 15th lands on a holiday or weekend.
As of the time of this writing, the monthly advance of the Child Tax Credit is only available for tax year 2021. The Child Tax Credit is set to revert back to $2,000 per qualifying child with no monthly advance beginning in 2022. Of course, this is subject to congressional changes.
Matters discussed in this article are subject to change and are for informational purposes only. Contact a Widmer Roel professional for current information on this subject. Widmer Roel PC will not be held responsible for any claim, loss, damage or inconvenience caused as a result of this information.